unreported - daily record...valuing the marital property, that the insurance brokerage business in...
TRANSCRIPT
UNREPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 2069
September Term, 2012
_______________________________________
KERRIN S. SMITH
(f/k/a KERRIN S. AVEDON)
v.
ROBERT P. AVEDON
Meredith,
Zarnoch,
Eyler, James R.
(Retired, Specially Assigned),
JJ.
Opinion by Meredith, J.
Filed: November 5, 2014
This is an appeal by Kerrin S. Smith (“Wife” or “appellant”) from a judgment entered
by the Circuit Court for Anne Arundel County relative to her divorce from Robert P. Avedon
(“Husband” or “appellee”).
QUESTIONS PRESENTED
Appellant presents four questions for our review, which we have reordered and
condensed as follows: 1
Appellant’s questions presented, verbatim, are:1
1. Over the course of the first fifteen years of their nearly twenty[-] year
marriage, Ms. Smith left the workplace to assume the role of a “stay[-]
at[-] home mother” for the parties’ four children, while Mr. Avedon
pursued his career as the sole owner, President, and financial decision
maker for his company, enabling him to earn hundreds of thousands of
dollars annually. The trial court imputed to Mr. Avedon an income of
$265,000.00 per year and further held that Ms. Smith — returning to
the workforce as a retail sales clerk, at fifty years of age, after a
fifteen[-] year hiatus — could in theory earn $40,000.00 per year.
Assuming for the moment that these numbers are valid, Ms. Smith’s
hypothetical income would be approximately 13% of Mr. Avedon’s
actual income. In denying Ms. Smith’s request for indefinite alimony,
the trial court dismissed these glaring statistical disparities, while
apparently concluding that a “down economy” might cause a further,
future reduction in the parties’ respective lifestyles. Was the trial
court’s decision to deny Ms. Smith indefinite alimony an inequitable
abuse of discretion?
2. Mr. Avedon’s income is derived from an insurance company of which
he is the sole owner, President, and decision[-]maker — and in that role
he reported annual incomes in the nine years prior to trial ranging from
approximately $248,000.00 to $885,000.00. From 2007-2010, Mr.
Avedon’s reported annual income averaged $322,150.66. That is what
he reported — but the fact that he intentionally underreported his
income throughout that period was confirmed by Mr. Avedon’s own
testimony, further substantiated by the findings of a court-appointed
(continued...)
1. Did the trial court err in excluding from marital property a portion of the good
will in Husband’s insurance brokerage company?
2. Did the trial court commit clear error in determining appellee’s yearly income
to be $265,000 as of the date of divorce?
3. Did the trial court abuse its discretion in declining to award Wife indefinite
alimony?
(...continued)1
expert accountant, and the admissions of Mr. Avedon’s own counsel in
this case. Was the trial court’s assessment of Mr. Avedon’s income at
$265,000.00 per year clearly erroneous?
3. The trial court found the value of Mr. Avedon’s company to be $497,000.00,
and further found that Mr. Avedon had established non-transferable, “personal
good will” in the company valued at $100,000.00, which the court then
deducted before factoring the business into his marital property award to Ms.
Smith. Did the trial court commit reversible error, where as a matter of law,
in extending the concept of “personal good will” to the principal of an
insurance company (rather than the solo professional practices for which the
doctrine has been recognized in reported decisions), and as a matter of fact,
where there was no reliable testimony or evidence upon which the court could
reach its $100,000.00 assessment?
4. The trial court deemed it appropriate to award Ms. Avedon [Smith] — the
dependent spouse — a total of $25,000.00 in attorneys’ fees, in a case where
both parties incurred approximately $130,000.00 in fees and costs. Whereas
Mr. Avedon was clearly able to pay for his legal services, Ms. Smith was not.
The trial court, beyond vague reference to certain of the invoices submitted by
Ms. Smith’s counsel, failed to articulate how he determined, given the
financial circumstances of these parties, that Ms. Smith was only entitled to
$25,000.00 for legal services rendered in the amount of $130,000.00, or to
identify any actions taken by Ms. Smith in defense of her case that were
unreasonable, or in any way inappropriate. Did the trial court abuse its
discretion in awarding Ms. Smith $25,000.00 for attorneys’ fees, with total
fees exceeding $130,000.00?
2
4. Was the trial court’s award of $25,000 in attorney’s fees to Wife an abuse of
discretion?
Because we conclude that the trial court erred in its valuation of the marital property
and in its determination of Husband’s yearly income, we will vacate all the above awards and
remand the case to the Circuit Court for Anne Arundel County for further proceedings.
FACTS AND PROCEDURAL HISTORY
When the parties met in 1989, both were working. Husband worked for an insurance
brokerage firm in Greenbelt, Maryland, and Wife worked as a regional sales manager for a
legislative-database company on Capitol Hill. On June 23, 1990, the parties were married
in a religious ceremony in Atlanta, Georgia. Four children were born of the marriage: a
daughter born December 31, 1991; a son born April 21, 1995; a second daughter born
May 28, 1997; and a second son born July 31, 2000. Wife continued working until it was
decided by the parties, after the birth of their second child in 1995, that Wife would stay
home to raise the children.
In 1992, Husband founded an insurance brokerage firm called the Avedon Group, Ltd.
Husband is the president and sole decision-maker for his company. The Avedon Group sells
insurance (primarily health insurance) to businesses. It provides customer service to its
clients by being a problem-solver between the clients and the insurance agencies. Its
revenues are derived from commissions paid by the insurance companies. Husband testified
that he is licensed to sell insurance in Georgia, Florida, Delaware, Pennsylvania, Maryland,
3
Virginia, the District of Columbia, Kansas, and Illinois, but the bulk of his company’s
business comes from Maryland.
As president of the Avedon Group, Husband alone determined his own compensation.
His tax returns and W-2s were entered into evidence, and will be discussed in greater detail
below. During the marriage, Husband’s income enabled the family to enjoy a very
comfortable lifestyle that regularly included dining out at expensive restaurants, boating,
vacations, and season tickets to college and professional sporting events, including the Miami
Dolphins, Navy football, and Maryland basketball. One witness described the family’s
standard of living as “an enviable lifestyle.” Although Husband, in his brief, characterizes
the lifestyle enjoyed by the family when it was intact as “rather commonplace for a family
with four children,” the evidence on this point supported Wife’s contention that the couple’s
lifestyle was not so commonplace. Wife testified about “many trips to New York City,” and
said:
We started going to see the Rockettes every year. So, we’d get tickets to see
the Rockettes. We started doing Disney trips. Our first trip to Disney World
was like in October. We stayed at the All Star Resort Hotel, but [Husband]
didn’t like that because he felt like it was too rednecky a place to stay. . . .
[W]e stayed at the Grand Floridian Hotel right there on the monorail. So, we
did Disney, we did it in October, we did it again in December. We would go
down for a couple Decembers. We did Disney cruises. We did a three-day
Disney cruise, we did a four-day Disney cruise. On that one we took his
parents and then we did a seven-day Disney cruise. And we always did
excursions, we always had the outside rooms with the balcony.
We started going to — [Husband] and I took a trip to France probably around
our 10 wedding anniversary. We started going to Casa De Campo down inth
the Dominican Republic, which was — it’s an exclusive resort where people
4
like Gloria Estefan and Oscar De Larante [sic] have — . . . it was a very high
end resort where — we would go in the off season, you would rent a villa,
which came with a maid and a butler. The only way to get around was by golf
cart. [Husband] was very comfortable there because he could speak Spanish.
We used to laugh and call him Hollywood because people would ask him for
— they thought he was somebody special because we were getting massages
all the time and he was tipping everybody and the kids loved it, they had a
great time.
But, at home, all was not paradise for the Avedons. On October 8, 2004, the parties
entered into a “Mediated Temporary Voluntary Separation Agreement.” The Agreement
provided that the parties “both desire to avoid litigation concerning their decision to
separate” and that they “agree that neither party is at fault legally for this decision to
separate[.]” Husband moved from the marital home into a home the parties owned in the
Round Bay community in Severna Park, while Wife and the children remained in the marital
home in Arnold. Husband paid all the expenses associated with both households, including
all the activities of the parties’ children. At trial, he indicated that he had paid “for 100
percent of absolutely everything since I left in 2004.”
Despite the Agreement’s disclaimer that neither party was to be considered legally at
fault for the decision to separate, there was much testimony at trial regarding Husband’s
temper and domineering, boorish behavior. Wife testified that she signed the Agreement
under pressure from Husband, and that it was not her desire to separate in 2004. Husband
testified that the marriage was over long before the separation, and that it did not end because
of the affair that he began in the summer of 2004, but Wife’s witnesses testified that Wife
was “just destroyed” and “felt blindsided” when she learned Husband was being unfaithful.
5
The divorce was granted on the basis of a two-year voluntary separation. In addition
to granting Wife a divorce, the trial court also decided, in the course of identifying and
valuing the marital property, that the insurance brokerage business in Husband’s name had
a fair market value of $497,000.00, but $100,000.00 of that sum was non-marital “personal
good will.” In other words, the court found that $397,000.00 was the value of the marital
property portion of Husband’s business. Using that value for the marital portion of
Husband’s insurance business, the court essentially equalized the marital property holdings
by granting a marital award of $178,082.00 to Wife.
With respect to Wife’s claim for alimony, the court found, based upon testimony from
Husband’s vocational expert, that Wife “does have the ability . . . at some point to be self-
supporting” by earning a potential annual income of $40,000.00 to $47,000.00. The court2
awarded Wife five years of rehabilitative alimony in the amount of $3,500.00 per month.
During the trial, Wife attempted to persuade the court that Husband was grossly
understating the income he derived from his insurance business. Wife argued that Husband
regularly paid personal living expenses with pretax dollars by having the company pay for
items that were not business expenses. Husband admitted that, every year from 1992 to 2008,
he had underreported his income to the Internal Revenue Service, candidly remarking that,
In the court’s 2010 ruling, the court found that Wife was capable of earning2
$40,000.00 per year. Upon remand, the court made a finding that Wife eventually “would be
able to earn $47,000.00 [sic] in income per year.” But the court also reiterated that the court’s
previous child support award “shall remain in effect: this Court having found that the [Wife]
earns or is capable of earning $40,000.00 [sic] per year. . . .”
6
if he was reporting honestly, he would have owed more in taxes. The court-appointed
business valuation expert testified that, in his view, the company had paid for approximately
$88,000 worth of “non-operating personal expenses” for Husband in 2009. Husband’s tax
returns reported his income to be: $372,899 in 2007; $345,553 in 2008; $248,000 in 2009.
At the time of trial in early 2010, based upon his year-to-date paychecks, Husband projected
that his income for 2010 would decline to $204,000. The court found that Husband’s annual
income was $265,000.
Both sides incurred substantial legal bills in this case, with each side’s bills for legal
fees and litigation expenses, at the time of trial, being in the neighborhood of $130,000. The
court opined that the fees were “excessive on both sides of the table,” and that “[t]here’s no
question Mr. Avedon is in a position where he can make a contribution to [Wife’s] legal fees
because some aspects of this case were clearly justified.” The court ordered Husband to
contribute $25,000.00 toward Wife’s attorneys’ fees. On March 29, 2010, a judgment of
absolute divorce was docketed.
Wife timely pursued an in banc appeal to a three-judge panel. The record reflects that
the parties submitted memoranda, and then argued their respective positions to the panel on
August 3, 2011. On June 28, 2012, the panel vacated the awards as to marital property,
counsel fees, alimony, and child support, and remanded the case to the trial court “so that it
may reconsider those awards, after receiving any additional testimony and/or argument it
deems appropriate.” (The trial court’s award of child support was not appealed to the in banc
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panel, but it was vacated nonetheless when the panel determined that the trial court needed
to reconsider the parties’ marital property and Husband’s income. Child support is not an
issue raised in the present appeal.)
The trial judge conducted a remand hearing on September 19, 2012. It took no new
testimony or evidence. On October 26, 2012, the trial court issued an opinion and order that,
in all material respects, reasserted its original awards. Wife appealed from that judgment.3
DISCUSSION
1. Value of Avedon Group, Ltd. and Husband’s professional good will
When the court identified and valued the marital property, it concluded that the value
of marital assets in Husband’s sole name was $445,043, and the value of marital assets in
Wife’s sole name was $87,401. The difference between these two numbers is $357,642. The
court granted Wife a marital award of roughly half this difference, in the amount of
$178,082. (The amount awarded — $178,082 — is 49.8% of the difference.)
The largest component of the marital property held in Husband’s sole name was the
Avedon Group. Three business valuation experts testified at trial. The court-appointed expert,
Robert Rosenthal, expressed the opinion that the fair market value of the company was
$497,000. A business valuation expert called by Wife, Mark Morris, did not take issue with
Husband’s motion to dismiss the appeal (on the ground that it was barred because3
Wife’s appellate rights had been exhausted in the in banc appeal) was denied. Clearly, Wife
is appealing from a judgment that was entered subsequent to the remand ordered by the in
banc panel.
8
the methodology employed by the court-appointed expert, but Wife’s expert asserted that the
market value would have been higher — $811,000 — if Husband had not paid so many
personal expenses with company funds. An accountant called by Husband to testify about
business valuation, Carter Heim, did not quarrel with the court-appointed expert’s opinion
as to the fair market value of the company. The court found that the fair market value of the
Avedon Group was $497,000, explaining:
After reviewing the reports and testimony of all three (3) experts, this
Court accepted Rosenthal’s opinion as to the fair market value of Avedon
Group. Rosenthal was an independent and neutral evaluator with no stake in
this litigation and this Court was persuaded by his reasoning and methodology
for determining the fair market value of Avedon Group to be $497,000. . . .
Relying on the conclusion of the court-appointed expert as to the fair market
value of the business, this Court finds that the fair market value of Avedon
Group is $497,000 . . . .
This finding was well-supported by the evidence, and was not clearly erroneous. But
the trial court declined to include the full fair market value of the company in its assessment
of marital property held by Husband. The court found that part of the value of Avedon Group
was
a personal goodwill component based on the fact that the [Husband] was the
sole owner of the company, the business carried his name, the company
conducted minimal advertising and marketing, the [Husband] held close
relationships with a significant portion of the client base and insurance
companies, the [Husband] generated a significant amount of business, and the
[Husband’s] personal efforts were a large aspect of the company.
9
As a result of its conclusion that there was personal goodwill, the court found that
approximately 20% of the fair market value of the company was non-marital property,
stating:
[T]he fair market value of Avedon Group, LTD, is $497,000 and $100,000 of
the fair market value constitutes the personal goodwill component, which is
non-marital property. This Court further finds that the marital property portion
of Avedon Group, LTD, is $397,000.00.
Having found that the “fair market value” of this company was $497,000, it was error
for the court to exclude $100,000 of that amount from the marital property assessment. When
we apply the plain statutory definition of marital property to the facts of this case, it is clear
that the Avedon Company was, in its entirety, a marital asset, and its full fair market value
should have been considered marital property. Marital property is defined in FL § 8-201(e)
as follows:
(e) Marital property. — (1) “Marital property” means the property,however titled, acquired by 1 or both parties during the marriage.
(2) “Marital property” includes any interest in real property heldby the parties as tenants by the entirety unless the real property is excluded byvalid agreement.
(3) Except as provided in paragraph (2) of this subsection,“marital property” does not include property:
(i) acquired before marriage;
(ii) acquired by inheritance or gift from a third party;
(iii) excluded by valid agreement; or
(iv) directly traceable to any of these sources.
10
In Conteh v. Conteh, 392 Md. 436, 443 (2006), the Court of Appeals described the
statutory definition of marital property as using “sweeping language” embracing all property
acquired during marriage unless specifically excluded. The Conteh Court noted, id., that, in
Deering v. Deering, 292 Md. 115, 125 (1981), it had similarly
relied upon “the sweeping language of” Maryland's marital property statute,under which “‘marital property’ is defined as ‘all property, however titled,acquired by either or both spouses during the marriage.’” (Deering, 292 Md.at 125, 437 A.2d at 889, emphasis in original). Judge Digges pointed out thatthe “term property” is “‘of wide and rather comprehensive signification,’”ibid., quoting Diffendall v. Diffendall, 239 Md. 32, 36, 209 A.2d 914, 915(1965).
In holding that the pension benefits at issue in Conteh were marital property, the Court
further commented on the statutory definition, 392 Md. at 449-50 (footnote omitted):
It is clear from the statutory language and the cases that propertyacquired by either spouse during the marriage, and not within a statutoryexception, constitutes marital property regardless of which spouse's “effort”was directly responsible for the acquisition of the specific item of property.The “effort expended by each party in accumulating the marital property” isexpressly made one of the factors to be considered in making an award ortransferring an interest in the property; it is not a factor in determining initiallywhat is marital property. See § 8-205(b)(8) of the Family Law Article. Ifparticular property directly acquired by the efforts of only one spouse were notmarital property, one of the principal purposes of the marital property statutewould be defeated. A chief reason for the statute was “giving recognition tothe non-monetary contribution of one spouse with regard to the acquisition ofproperty by either or both spouses during the marriage.” Alston v. Alston, 331Md. 496, 506, 629 A.2d 70, 71 (1993). See also, e.g., Harper v. Harper, 294Md. 54, 61-64, 448 A.2d 916, 919-921 (1982).
It is clear from the evidence in this case that the Avedon Group, although titled solely
in the name of Husband, was wholly acquired during the marriage. The company was
11
founded by Husband two years after the parties were married, and after the birth of their first
daughter. There was no evidence that any portion of the company was excludable from the
definition of marital property pursuant to any of the exceptions set forth in FL § 8-203(e)(3).
Nevertheless, Husband argued that the value of any personal goodwill he had built
up while owning and managing the company should be considered non-marital property
even though it was a marketable asset he had acquired during the marriage. Husband bases
this argument on Prahinski v. Prahinski, 321 Md. 227 (1990), and cases that have applied
the holding of Prahinski. In Prahinski, the Court of Appeals held that, because attorneys are
not permitted to sell clients, the personal goodwill in the law practice of an attorney who
conducted business as a solo practitioner was not a marketable asset, and therefore not
marital property. The Court explained, id. at 239-41:
[W]e are of the opinion that the goodwill of a solo law practice is personal tothe individual practitioner. Goodwill in such circumstances is not severablefrom the reputation of the sole practitioner regardless of the contributionsmade to the practice by the spouse or employees. In order for goodwill to bemarital property, it must be an asset having a separate value from thereputation of the practitioner.
We are not convinced that the goodwill of a solo law practice can beseparated from the reputation of the attorney.
* * *
Because the instant case involves the practice of law, specialconsiderations arise which might not be present in other professionalpractices. . . . It is clear that an attorney, as distinguished from otherprofessionals, may not covenant to abstain from the practice of law, andtherefore, may not sell his or her goodwill. . . .
12
Other professions do not have the prohibition against the sale ofgoodwill. . . .
Since a lawyer's goodwill is not a saleable asset, it has no commercialvalue. The methods for valuing the marketable goodwill of a profession orbusiness would not be applicable to an attorney's nonmarketable goodwill.The fact that a lawyer's goodwill cannot be sold by the lawyer is another factorin our determination that it is not marital property.
The specific holding of Prahinski — that the goodwill of a lawyer who is a solo
practitioner is not a marketable asset and not marital property — does not support the trial
court’s conclusion that a portion of the fair market value of the Avedon Group should be
considered non-marital property. Prior to its ruling in Prahinski, the Court of Appeals had
previously held in Archer v. Archer, 303 Md. 347, 357 (1985), that, because a medical
degree and license was a personal asset that could not be sold, those assets were not marital
property. But the Court of Appeals has never extended the holding of Prahinski to exclude
from marital property marketable goodwill of other business entities acquired during
marriage.
This Court has interpreted the exclusion recognized in Prahinski to apply the
somewhat analogous situation of a doctor who is the sole professional in his practice.
Skrabak v. Skrabak, 108 Md. App. 633, 649-50 (1996) (insufficient evidence that there was
marketable goodwill other than the anesthesiologist’s personal reputation); Strauss v. Strauss,
101 Md. App. 490, (1994) (oral surgeon who was “the only board-certified specialist in oral
and maxillofacial surgery in Western Maryland”). But cf. Hollander v. Hollander, 89 Md.
13
App. 156, 169 (1991) (“[W]e conclude that a solo dental practice including its goodwill value
is marital property that should be considered when granting a monetary award.”).
The Hollander Court explained: “Because the value of goodwill can be realized by
sale, it would not be inequitable to require the professional to pay the spouse a share of this
asset.” Id. at 167. Indeed, in the present case, unlike the lawyer in Prahinski, Husband could,
if he chose to do so, sell the personal goodwill he has built up during his ownership of
Avedon Group. That was the clear conclusion of the court-appointed business valuation
expert whose opinion as to the fair market value of the company was adopted by the court.
Given the “sweeping language” used by the General Assembly to define marital property, it
was error for the trial court to exclude a portion of the fair market value of Avedon Group.
As a consequence of this error, we must vacate and remand for reconsideration not
only the marital award, but also the rulings regarding alimony and attorneys fees. Turner v.
Turner, 147 Md. App. 350, 400 (2002) (“the factors underlying alimony, a monetary award,
and counsel fees are so interrelated that, when a trial court considers a claim for any one of
them, it must weigh the award of any other”). For guidance of the court, we shall comment
on the parties’ arguments regarding those other issues.
2. Husband’s annual income
In its post-remand opinion, the trial court explained its reasoning regarding its
determination that Husband’s annual income was $265,000 as follows:
In its decision rendered from the bench on March 19, 2010, and the
Judgment of Absolute Divorce, docketed on March 29, 2010, this Court
14
concluded that [Husband’s] annual income equaled $265,000.00. The in banc
panel remanded the case to allow this Court to offer an explanation as to how
it factored in the Defendant’s business expenses, under-reported income and
other relevant evidence, when arriving at its finding as to the [Husband’s]
annual income. At the remand hearing, [Wife] argued that an annual income
in the amount of $338,000.00 should be attributed to [Husband] on the basis
that this Court should have averaged the [Husband’s] reported incomes for
2007, 2008, and 2009, and attribute an additional amount to compensate for
[Husband’s] underreporting.
In arriving at its determination, this Court relied on the [Husband’s] W-
2s and took note of the significant decrease in [Husband’s] reported income
for the years 2009 and 2010. This Court reviewed the W-2 reports for 2008,
2009, and 2010, and factored in the significant decrease in income for those
respective years: [Husband’s] reported income in 2008 was $326,000.00 and
in 2009 reduced to $248,000.00. As [the court-appointed expert, Mr.
Rosenthal] testified, the economy has experienced a significant downturn, and
this Court, in determining the [Husband’s] income, could not ignore this fact.
Further, the Plaintiff’s [sic] own expert witness, Carter Heim, even testified
that an executive president, like the [Husband] of such a company as Avedon
Group with revenue in the amount of $1.135 million per year, would earn
approximately $177,134.00 in annual income. This figure is significantly[4]
lower than what [Wife] proffers is [Husband’s] annual income. This Court
heard testimony that the projected gross income of Avedon Group, even during
the economic downturn, amounted to well over one million dollars per year.
As for the allegations of underreporting, this Court reiterated in its oral
opinion on March 19, 2010 and at the remand hearing that there was no
evidence to substantiate [Wife’s] allegation of underreporting. [Wife]
continues to emphasize [Husband’s] underreporting of income and the fact that
[t]his Court failed to properly factor in the non-business expenses that
[Husband] attributed as business expenses. A forensic accounting analysis was
not ordered or requested by either of the parties, and there was no independent
auditing of the business, therefore [Wife] could not substantiate a claim that
certain expenditures marked as business expenditures were in actuality
Carter Heim was not “Plaintiff’s own expert witness.” Wife was the plaintiff in the4
underlying action. Mr. Heim was called as Husband’s witness, and was accepted by the court
as an expert “in the field of business evaluations.”
15
personal expenditures. Further, [Wife] made allegations of underreporting, but
provided no actual evidence to substantiate the actual amount of unreported
income that should be attributed to [Husband]. For this Court to make a[5]
finding as to the value of unreported income without any forensic accounting
analysis or testimony as to such an amount, would be a matter of pure
guesswork, which this Court refuses to engage in. However, because this
Court believed that underreporting existed in this case, this Court assessed
[Husband’s] income above his most recent W-2 to account for the unreported
income.
In making a determination as to [Husband’s] income, this Court further
examined [Husband’s] credit card expenditures from the single account that
[Husband] utilized to pay all of his expenses. This Court noted that in 2007
and 2008, [Husband’s] credit card expenditures were well over $160,000.00
per year. However, in 2009, [Husband’s] annual credit card expenditures
significantly reduced to $119,390.00. This evidence has some probative value,
indicating that [Husband] did not have as much expendable income at his
disposal, as further reflected in his W-2 for 2009.
In conclusion, this Court relied on the most recent W-2 of [Husband]
from 2009, which reported [Husband’s] income for 2009 as $248,000.00.
Factoring in the downturn in the economy, the lost revenue in Avedon Group
from 2008 to 2009, and the decrease in [Husband’s] credit card expenditures,
this Court, in its discretion, believed that the most recent W-2 was reflective
of [Husband’s] actual income. This Court further assessed [Husband’s]
income above the reported income for 2009 to account for the alleged
underreporting. In its discretion, this Court attributed $265,000 to [Husband’s]
annual income. After review of its finding, the exhibits, financial information
presented at trial, the testimony, and arguments advanced at the remand
hearing, this Court finds that attributing an annual income of $265,000.00 to
[Husband] was proper and shall remain in effect.
In his testimony at trial, Husband agreed with his counsel’s admission that, in 2007,5
he received the benefit of his company paying for personal non business expenses worth
$44,484 more than the income that was reflected on his 2007 W-2; in 2008, he received
benefits worth $48,802 more than was reflected on his 2008 W-2; and in 2009, he received
benefits worth $50,169 more than was reflected on his 2009 W-2.
16
Because the standard of review for a factual finding such as a party’s income requires
deference to the trial court’s weighing of the evidence, we would have concluded that the
finding regarding Husband’s income was not clearly erroneous if the court’s explanation did
not include several factual statements that, standing alone, are clearly erroneous. As the
above excerpt reflects, the court referred to relying in part on Husband’s 2010 W-2 (although
the 2010 W-2 was not in evidence); and the court stated that there was “no actual evidence
to substantiate the actual amount of unreported income that should be attributed to
[Husband]” notwithstanding the concession of Husband and his counsel as to certain amounts
(e.g., $50,169 in 2009) and the testimony of the court-appointed valuation expert as to even
greater amounts of unreported compensation (who assumed for purposes of his valuation that
the company had paid for approximately $88,000 worth of “non-operating personal
expenses” for Husband in 2009). In the “conclusion” paragraph quoted above, the court6
We note that, although Husband blamed his declining income on the unforseen loss6
of clients, Wife’s counsel elicited concessions regarding the freedom he had, as his
company’s president and sole decision-maker, to spend company funds and designate various
personal expenditures as “business expenses.” For example, Husband testified that he flew
to Florida twice a month, with all expenses paid by the company. Husband claimed that
every expense he incurred in Florida was business-related, but had no evidence to support
that assertion. He claimed that his Florida trips were business-related and not related to the
Miami residency of his girlfriend.
Husband testified that his company, which his counsel described as “tanking,” leased
him a Land Rover for his use in Florida, along with the Land Rover it leased for him in
Annapolis. Until the company purchased the Florida Land Rover in June 2009 for $51,000,
it was making monthly lease payments of $1,355. It was also making monthly lease
payments of $1,509 on the Annapolis Land Rover. Husband testified that he considered all
(continued...)
17
stated: “In conclusion, this Court relied on the most recent W-2 of [Husband] from 2009,
which reported [Husband’s] income for 2009 as $248,000.00.” The court also indicated that
it “believed that underreporting existed in this case.” Husband admitted receiving benefits
worth $50,169 more than was reflected in his 2009 W-2. Mr. Rosenthal had used the figure
of $88,000. Adding either of these numbers to the amount shown on the 2009 W-2 would
indicate Husband’s actual income was well in excess of $265,000. Because the court’s
finding regarding Husband’s income appears to be the product of these erroneous supporting
findings, we will vacate the finding that Husband’s income is $265,000.
3. Indefinite Alimony.
Wife asserts that the court erred in finding that there would be no unconscionable
disparity in the parties’ standards of living after the divorce. Although, for the reasons stated
in the preceding section, the court must revisit Husband’s income on remand, even if the
correct annual amount was $265,000, we would find clear error in the court’s conclusion that
there will be no unconscionable disparity in the parties’ standards of living. If we use the
court’s figure of $265,000 as Husband’s total annual income, and the theoretical income of
(...continued)6
car washes as legitimate business expenses.
Husband’s company also paid the bills for his Coral Gables condominium, utilities,
and associated fees. The company pays for meals and excursions in Florida, as well as for
family vacations. In 2006, Husband purchased a sport-fishing boat for $187,635. He keeps
the boat in Florida, and his company pays for storage (at $684 per month) and fuel. He never
produced any documentation substantiating that any of these charges were incurred for a
business purpose.
18
$40,000 the court found to be a possibility for Wife to achieve, we see that Wife’s income
would be just 15% of Husband’s. Although our case law makes it clear that gross disparity
in income, standing alone, does not establish the unconscionable disparity in standards of
living required to justify a award of indefinite alimony pursuant to FL § 11-106(c)(2), there
are no other factors present in this case that would support a conclusion that such a gross
disparity in financial resources was not unconscionable. As the Court of Appeals observed
in Boemio v. Boemio, 414 Md. 118, 144 (2010), courts
must be pragmatic in recognizing that a disparity in income is necessarily
going to play a highly significant role in making a finding that ‘the respective
standards of living of the parties will be unconscionably disparate.’ FL
§ 11-106(c). In this context, ‘standards of living’ means how well the
respective parties can live based on their respective financial means.
At the time of trial, Wife was about to turn fifty years of age, was working part-time
in retail, and had last held a full-time job in 1995, at which point she and Husband agreed
that it was in their mutual interest for her to become a full-time stay-at-home mom. She
removed herself from the business world to be a home-maker and raise the couple’s four
children. Although Wife had been gainfully employed a couple of decades ago, Husband’s
vocational expert testified that there “may be some kinds of computer routines that she is not
familiar with at this point in time,” which is a reasonable concern. The court recognized that
it was unlikely Wife would ever be a big wage-earner, but concluded that she should be able
to become self-supporting and earn $40,000 per year.
19
As we stated in Simonds v. Simonds, 165 Md. App. 591, 611-12 (2005), the court
considering a request for alimony “cannot merely ‘do the math.’” We indicated in that case,
there are certainly situations in which it would not support a finding of unconscionable
disparity for a divorcing spouse to have an earning capacity of over six times greater than the
other spouse. Their post-divorce standards of living might not be unconscionably disparate
if the marriage was brief and the post-divorce living standards were comparable to their pre-
marriage standards of living, or if the spouse with limited earning capacity was independently
wealthy or likely to receive a substantial inheritance or win the lottery. The standards of
living might not be unconscionably disparate if the marital award was so large that the
investment income from that and other assets permitted the spouse with lesser earning
capacity to maintain a lifestyle that was not hugely different from the higher income spouse.
And the disparity might not be unconscionable if the spouse with limited earning capacity
had not contributed to the career development and earning capacity of the high-earning
spouse by providing family support and raising the couple’s children. But there was no
evidence in this case that any of these circumstances will moderate the gross disparity in
disposable income that will be available to Husband and Wife in this case.
As Judge Theodore Bloom wrote for this Court in Rogers v. Rogers, 80 Md. App.
575, 591 (1989):
On the basis of the record in this case, however, we see no logical reason fordenying alimony. Neither party was found to be at fault; the divorce wasgranted on the non-culpable grounds of two years separation. It would seem,
20
therefore, that a gross disparity in income, which ordinarily translates into agross disparity in standards of living, would be an unconscionable disparity.
See also Holston v. Holston, 58 Md. App. 308, 324 (1984) (“chancellor’s failure to award
indefinite alimony was a clear abuse of his discretion”).
In Solomon v. Solomon, 383 Md. 176 (2004), the Court of Appeals affirmed this
Court’s remand of a case even though the trial court had made an award of alimony. The
Court held that, despite the alimony income, there would still be an unconscionable disparity
in the standards of living, stating, id. at 197:
We agree with Mrs. Solomon and the Court of Special Appeals that the Circuit
Court abused its discretion in the amount of indefinite alimony awarded. On
this record, that amount does not achieve the required result of eliminating the
unconscionable disparity found by the court to exist.
The Court of Appeals made the following observations about awards of indefinite alimony
in Solomon, id. at 198-99:
There are very few reported Maryland cases in which a challenge to the
adequacy of the amount of an indefinite alimony award was mounted. Usually
the attack has been on the threshold determination of whether an
unconscionable disparity existed at all. There are several cases in which
Maryland appellate courts found unconscionable disparity based on the
relative percentage the dependent spouse's income was of the other
spouse's income. See Tracey, 328 Md. at 393, 614 A.2d at 597 (28 percent);
Caldwell v. Caldwell, 103 Md.App. 452, 464, 653 A.2d 994, 999 (1995) (43
percent); Blaine v. Blaine, 97 Md.App. 689, 708, 632 A.2d 191, 201 (1993),
aff'd on other grounds, 336 Md. 49, 646 A.2d 413 (1994) (23 percent); Rock
v. Rock, 86 Md.App. 598, 613, 587 A.2d 1133, 1140 (1991) (20-30 percent);
Broseus v. Broseus, 82 Md.App. 183, 186, 570 A.2d 874, 880 (1990) (46
percent); Bricker v. Bricker, 78 Md.App. 570, 577, 554 A.2d 444, 447 (1989)
(35 percent); Benkin v. Benkin, 71 Md.App. 191, 199, 524 A.2d 789, 793
(1987) (16 percent); Zorich v. Zorich, 63 Md.App. 710, 717, 493 A.2d 1096,
1099 (1985) (20 percent); Kennedy v. Kennedy, 55 Md.App. 299, 307, 462
21
A.2d 1208, 1214 (1983) (33 percent). Although we do not adopt a standard
that unconscionable disparity exists based on a particular percentage
comparison of gross or net income, the relative percentages in these cases offer
some guidance us [sic] here in assessing whether the amount of the indefinite
alimony award alleviated adequately the unconscionably disparate situation
found to exist in the present case. We hasten to note, however, that each case
must be evaluated on its facts and not on some fixed minimum or universal
standard.
Turner v. Turner, 147 Md.App. 350, 809 A.2d 18 (2002), appears to be
the only reported Maryland case where the amount of an indefinite alimony
award established by a trial court was reversed for inadequacy. In Turner, the
Court of Special Appeals found the amount of alimony awarded by the Circuit
Court to be insufficient to alleviate the harsh disparity between the parties'
incomes and standards of living. The intermediate appellate court based its
conclusion on a numerical comparison of the parties' post-divorce, annual
incomes. It calculated Mrs. Turner's yearly income, including alimony and
imputed earnings, to be approximately $59,000, and calculated Mr. Turner's
yearly income, less alimony payments, to be at least $151,000. Id. at 392, 400,
809 A.2d at 43, 47. Including alimony, Mrs. Turner's yearly income would
have been approximately 35 percent of Mr. Turner's income. The court
found the substantial gap in the Turners' incomes and standards of living
to be substantial and unconscionable, vacated the award, and remanded
the issue to the trial court for reconsideration. We find the analytical
approach employed in Turner to be persuasive in the present case.
(Emphasis added.)
Approving the award of indefinite alimony in Boemio, the Court of Appeals stated,
414 Md. at 145:
The Circuit Court's decision to find that the disparity in standards of
living was unconscionable was consistent with this settled law. Currently,
Boemio [husband] earns four times what Seixas [wife] earns, and Judge
Mason found that Seixas was unlikely to be capable of earning substantially
more than that. As shown above, Maryland cases have awarded indefinite
alimony where the income disparity has been considerably less drastic. See
Digges v. Digges, 126 Md.App. 361, 389-90, 730 A.2d 202, 218-19 (1999)
22
(discussing numerous cases where indefinite alimony was awarded when the
parties seeking alimony earned less than half of the other spouses' incomes).
(Emphasis added.)
Although the trial judge in this case stated that “no evidence was presented to
substantiate a finding that the respective standards of living of the parties will be
unconscionably disparate,” there was ample testimony about Husband’s expensive tastes and
ability to use Avedon Group’s financial resources to fund high-end trips, dining, vacations,
sporting events, boats and cars. There was no reason to suspect he will not be able to
maintain such a lifestyle. On the other hand, if the court is correct that Wife will be able to
earn $40,000 per year, there is no rational reason to believe that her lifestyle will include any
such luxury amenities.
The court will have a further opportunity to re-examine this issue on remand, and with
four years having passed since the trial in this case, the parties will have the right to present
evidence of up-to-date financial information. Fuge v. Fuge, 146 Md. App. 142 (2002). In
Fuge, we examined a monetary award made in 1998, at the time of the parties’ divorce. Both
parties filed appeals following the 1998 divorce decree, and the circuit court looked at
various issues in the case three times on remand. In 2001, on its third remand, the circuit
court adjusted the 1998 monetary award, but, in doing so, “it failed to reevaluate the parties’
economic circumstances in 2001,” which, we held, was error. Id. at 146. In remanding the
case yet again, we noted that the case dealt with “stale economic circumstances,” id. at 176,
23
and that the court would need to refresh and update its 1998 numbers to reflect the “parties’
economic circumstances at the time the award is made”:
We also hold that the trial court must keep in mind all eleven of the [FL]
section 8-205(b) factors upon remand. The modification of an original
monetary award on remand is still an “award,” triggering consideration of the
section 8-205(b) factors.
It is logical that a trial court be required to reconsider the section 8-
205(b) factors, even in a case such as this, where it essentially is revising an
earlier monetary award. The weight that a court gives to the section 8-205(b)
factors, and the size and nature of its ultimate award, may depend on the
amount of marital property to be distributed.
When the extent of the marital property has changed due to an appellate
decision, the trial court should rethink whether its original method of
allocation is still “equitable” in light of the new circumstances. Further, the
court must carefully consider whether there have been any other changes in
circumstance since its original award that may have caused the equities to
shift, justifying a different allocation of the marital property.
Id. at 176-77 (footnote omitted).
4. Attorneys’ Fees
Similarly, the court must re-examine the attorney’s fees issue. The parties’ legal bills
were roughly the same: $130,000 for each side. But the trial court here was particularly
critical of the fees charged by Wife’s attorney, even though they were comparable in amount
to those charged by Husband’s legal team. In its oral opinion, the court stated, “I just felt
based on my experience practicing law 28 1/2 years that the trial preparation in this case was
excessive on both sides of the table.” Even though the court stated the trial preparation was
excessive on both sides, the court commented in its remand opinion that it “was extremely
24
troubled by the amount of the [Wife’s] attorney’s fees.” The award covered less than one-
fifth of the amounts billed by Wife’s attorneys.
Although it is true that courts have wide discretion in deciding whether or not to
award attorneys’ fees, discretion cannot be exercised in an arbitrary manner. Coviello v.
Coviello,. 91 Md. App. 638, 658 (1992). We found such an abuse of discretion in Wassif v.
Wassif, 77 Md. App. 750 (1989), where a trial court declined to award attorneys’ fees even
in the face of unconscionably disparate circumstances. We reversed the circuit court’s finding
that Mrs. Wassif – who was unemployed, had been out of the workforce for a long period of
time, was not at fault for the breakup of the marriage, and incurred the legal bills because of
her husband’s conduct – was not entitled to attorneys’ fees. We noted:
Just because the marital assets which were owned by the parties at the time of
the divorce were divided equally hardly means that the Wife is in an equal
position to pay (or, for that matter, should have been required to pay) her
attorneys' fees and other costs of the divorce proceeding, which amounted to
approximately $35,000. The income generated from the monetary award of
$83,976.50 (payable in installments of $2,709.66 per month) is not enough to
pay off her attorneys' fees and other expenses of this litigation. Indeed, these
fees and costs would exhaust all the principal she has received to date. The
$500 per week alimony, furthermore, is meant for her ordinary living
expenses. The expenses which the Wife incurred for a private investigator
were occasioned by the Husband's adultery. The expenses which she incurred
for an accountant were necessary because of the Husband's substantial income
and because she was seeking alimony and child support. In view of all of these
facts and including the evidence that the Husband paid for his attorneys' fees
out of marital assets, the Wife is entitled to an award of suit money and a
substantial portion of her attorneys' fees that the court finds reasonable and
necessary. We leave the actual amount in the discretion of the trial court.
Id. at 765.
25
As in Wassif, the record here makes clear that Wife is in an distinctly inferior financial
position as compared to Husband, and that her future earning potential is a small fraction of
Husband’s. The record makes plain that, even if there was, in the court’s view, excessive
litigation in this case, Wife’s legal expenses were driven in large part by Husband’s litigation
posture. Husband here controlled the purse strings, and could pay for his fees out of marital
assets; Wife lacked the same access to the assets that Husband had. Given the court’s finding
that Wife was “entitled to attorney’s fees and that the [Husband] has the ability to
contribute,” an award of less than 20% of the amount of the total attorney’s fees incurred by
Wife appears punitive and unreasonable. The fees were roughly the same for both parties,
and the court did not find that Wife’s legal fees were five times greater than reasonable
attorneys would have charged for litigating this case. On remand, the court shall revisit the
issue of attorney’s fees.7
JUDGMENT OF THE CIRCUIT COURT FOR
ANNE ARUNDEL COUNTY VACATED. CASE
REMANDED FOR FURTHER PROCEEDINGS
NOT INCONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY APPELLEE.
We note that, at the conclusion of Wife’s brief, she asserts: “This case must be7
remanded for a new trial, before a new judge, if there is to be any hope that the issues of
alimony, marital award, and fees central to this appeal will actually be examined and
‘considered’ under the proper legal standards and analytical framework.” Because there is
no indication that any request for recusal or disqualification was made in the circuit court,
there is no ruling before us to review. As we observed in Karanikas v. Cartwright, 209 Md.
App. 571, 579-80 (2013), there is a strong presumption that a trial judge is impartial. Because
of that strong presumption, we decline to consider appellant’s request, without prejudice to
Wife pursuing the issue in the circuit court on remand.
26